If you’re not satisfied with your margins you’ll be interested in a finding from a McKinsey study of 2,400 companies: “1% more price meant an average 11% increase in operating profit.”
What impact would this easily achieved increase have on your business? The wherewithal to add new products or services…buy additional equipment…hire more experienced employees…upgrade your facility…or simply bank it?
“I Can’t Take a Chance on Losing Volume”
You probably heard an oft-stated negotiating tenet: “You don’t get what you don’t ask for.”
And you’re probably thinking “Right, it’s easy for you to say just ask for it. But you’re not the one in the trenches battling formidable competitors. I can’t risk losing a project because of a few points of price.
But price is not the key determinant for most buying decisions. If it were, we’d all be driving Hyundais.
Don’t Hesitate Getting Fairly Compensated for Your Added Value
The mission is to identify, and get paid for, the added value of your products and services. Unfortunately, the most common methods for establishing prices are:
- Cost Plus: Adding a standard markup to the total costs of providing a given product or service
- Targeted Margin: Establishing a price to achieve a certain margin
The problem with either of these is that they’re based on your cost structure. They have nothing to do with the added value of your products or services.
Here’s how to identify the value you add to a client’s business.
Discussed in prior blogs, this includes:
- Increasing revenue
- Decreasing costs
- Providing an “emotional contribution”
<—The price your client expects to pay. It could be based on what a competitor quoted, or even a price that you quoted or charged before.
What are These Values Really Worth to Your Customers?
In the best of worlds, you will know your client’s industry and business well enough to accurately define the value of an energy efficiency upgrade. But this is the exception rather than the rule. However, to justify a premium over the reference price, it will be helpful to provide the following statistics to your clients.
Based on a U.S. Department of Energy review of market studies of LEED certified and Energy Star building, energy efficiency upgrades resulted in:
- Higher Rental Rates – LEED buildings display a 15.2-17.3%
- Higher Occupancy Rates – LEED buildings have 16-18% higher occupancy than non-rated buildings,
- Lower Utility Costs – Electricity and gas expenses in ENERGY STAR buildings are more than 13% lower compared to similar non-rated buildings
- Increased Sales Prices –LEED buildings exhibit a 10-31% premium and ENERGY STAR buildings exhibit an 6-10% premium over non-rated buildings
While the study addressed LEED and Energy Star buildings, similar results will be achieved with non-LEED and Energy Star buildings.
Increased Employee Productivity and Reduced Maintenance Costs
According to a review of various studies by National Grid, energy efficiency upgrades also increase employee productivity and reduce maintenance costs:
Increased productivity: According to the World Green Building Council, employees who work in a green building see a 23% increase in labor productivity from better lighting, an 11% increase from better ventilation, and a 3% increase from individual temperature control.
Reduced maintenance costs: Properties certified with LEED for Existing Buildings (LEED-EB) have reduced maintenance costs (9% less or $0.25 per square foot), according to Leonardo Academy. A study by the U.S. General Services Administration found that, on average, sustainably designed federal buildings have 13% lower maintenance costs than the typical U.S. commercial building.
Your Differentiators Make All the Difference in Getting More Yeses
It can be argued that the benefits of these upgrades are “generic.” That is, a building owner will realize them regardless of who performs the work. This is true assuming comparable product performance, quality, installation practices, code compliance, etc. but this is seldom the case. Many of your competitors won’t even recognize-let alone promote-them. If they mention anything in their proposals, it’s usually the resultant reduction in energy consumption and the associated savings.
In our next blog we’ll discuss your differentiators-what sets you apart from the competition that provides value to your clients. Promoting them is essential if you’re to improve the conversion rates and profitability of your energy efficiency upgrades. We’ll also discuss easy to apply pricing tips that will strengthen your bottom line performance.